Economic "D-Day" on Iran
The US is switching from military pressure to economic pressure on Iran. Treasury Secretary Scott Bessent will speak around 2:00 p.m. Eastern to explain what he means by an "economic D-Day." The plan is economic isolation - not only targeting Iran directly but also pressuring the countries that trade with Iran, to squeeze it further. Washington is playing a long game by cutting off Iran's money supply instead of dropping bombs. President Trump posted on Truth Social that Iran's economy is collapsing.
The scope of sanctions will broaden through secondary sanctions on any country doing business with Iran. Up to 90% of the crude oil Iran sells goes to China, and that oil is where Iran gets nearly all its money to fund the Revolutionary Guard and similar operations. China has acted well through this period: it cut its demand levels and drew on its large strategic reserves to get through. For the pressure to work, the US needs China to stop buying Iranian oil. There is talk that China may try to broker a deal since it depends on Iran for oil. Economic pressure will take longer but may prove more effective.
US-Canada Trade Talks Break Down
Talks fell apart, with retaliatory tariffs of 50% now in play. Trade Representative Jamieson Greer said a fairly good deal was close, then Canada kept coming back asking for more, and things broke down. The dollar amounts here are small relative to overall trade flows. Canada makes up about 0.6% of US international trade. The market is mostly ignoring this. It is a stumbling block that should lead to more negotiations and eventually get worked out, not a game-changer for the US.
Nvidia (NVDA) Earnings Week
Nvidia (NVDA) reports Wednesday after the bell and is one of three big stories of the week. Its results affect many companies attached to, related to, and dependent on it, so the market will move on the print. Tech is already under pressure from geopolitics: the NASDAQ is down half a percent, while the S&P is down just over a tenth of a percent, similar to the Dow.
Here is the odd part. As strong as Nvidia (NVDA) is, and as large as its quarterly numbers are, with no talk of any slowdown, the stock has struggled over the last eight quarters and is often down after earnings. Jensen Huang has been quoted saying the stock's performance is one of the great mysteries of his life. At some point Huang may argue the best investment out there is Nvidia's own stock. The street is starting to discount the post-earnings move, but do not assume it can't deliver a huge quarter - it has done so before, just not recently.
Fed, Jackson Hole, and Treasury Buybacks
Jackson Hole runs Friday. Kevin Warsh speaks on the 28th around 10:00 a.m. Eastern. This year's symposium theme is "financial innovation: implications for payments and policy." Warsh is the main voice to watch. He has been cautious and committed to fighting inflation in his first couple of press conferences, staying even-keeled with no controversial comments yet. The question is when he starts pivoting, and whether he says something explosive for markets. Jerome Powell did that a couple of years ago during the Biden administration when he talked about higher interest rates.
Last week midweek at 8:45 a.m. came a surprise bond buyback liquidity announcement. There could be far more buybacks, possibly up to $1 trillion. There is about $950 billion in the Treasury fund available to use. The stated move is from $2 billion up to over $4 billion, with room to go higher - a large tool to work with.
The underlying goal of Bessent and the Trump administration is lower interest rates. Their focus is the housing market, small business, and consumers. Warsh has also said he wants rates lower.
Other Data and Earnings
The week also brings the house price index, GDP, durable goods, and consumer sentiment. Beyond Nvidia (NVDA), earnings to watch include Smucker's (SJM), Salesforce (CRM), Intuit (INTU), and Dick's Sporting Goods (DKS).
